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Year End Tax Advice
The final quarter of the year is a good time to begin thinking about tax time and possibly make a few moves that could save you a few bucks when the day to file arrives.
Contact us if you are especially concerned about your tax situation. We will try to help you project your tax year so that there are no surprises. Depending on the nature of your concern, we can exchange documents electronically via our secure portal and answer your questions. (The office opens in early January).
Year End Tips
- Contribute to an IRA account. A traditional IRA contribution may reduce your tax liability. Check with me if you are not sure whether or not you are eligible to do this. (You do have until April 15th to make a contribution for the prior year)
- Pay your January mortgage payment in late December. If you itemize your deductions, this may increase those deductions for the current year and reduce your tax liability, since any mortgage interest paid is deductible in the year in which it is paid.
- Make a charitable donation. (And make sure to obtain a receipt)
- Add to your HSA account. (Limitations apply. ) (You have until April 15th to make a contribution for the prior year)
- Have a child. If the child is born on or before December 31, you will be entitled for a deduction, even though the child only lived with you for part of the year.
- Get divorced. If you are in the process of getting divorced, try to finalize everything before December 31
so you don't have to file a joint return for the current year.
- Plan your tuition payments. Planning may increase your overall tuition credits depending on when you started school and the timing of tuition payments. For example, if you are starting school in January, make sure you pay some of your tuition before December 31 in order to be able to take some education credit for the current year. Ask us for help as this can get tricky. In some situations it will make a difference, in others it may not.
- If you are 59 1/2+ , plan your IRA distributions to take advantage of years in which you have low income, and may be able to withdraw tax deferred money from your Traditional IRA and pay little or no tax on the distribution. (For the ROTH IRA you don't need to do this, as the ROTH is already tax free).
- Pay state estimated tax payments in December.
- If you anticipate a balance due to the state, make an estimated payment of that amount in December.
- If you know that your return will show a refund, change your W-4 to exempt for the month of December. Be sure to change it back on January 2, so there is appropriate withholding.
- Buy required school supplies for your children in K-12. Minneosta has an education credit or subtraction that will give you some of the money back. Keep the receipts and the list from the teacher showing what items the student is required to purchase.
- If you are self-employed (business or farm) and have had a very good year, consider contributing to a retirement plan or buying a needed piece of equipment before Dec 31. Do not buy a new truck just to get a tax deduction.
- If you are self-employed (business or farm) and are a cash basis taxpayer (most of us), be sure to pay all invoices that you have outstanding to your vendors so you can deduct what you paid them for the current tax year.
- Consider making resolutions for the new year if you have financial issues or goals that could be achieved in the coming year.
- Contact your tax professional in December if there are unusual circumstances that should be addressed before tax time. Most of us aren't busy until late January and can devote the time necessary to making sure you are on the right track.
Todd's Tax Service LLC